April 2007, Roberto Frenkel and Martín Rapetti
This paper offers a comprehensive look at how Argentina managed a remarkable economic recovery from its collapse in 2001. The authors show how the Argentine government’s policy of targeting a stable and competitive real exchange rate was crucial to the country’s economic recovery. They also analyze the various sources of aggregate demand and government revenue in different phases of the expansion. In addition to the crucial role of the exchange rate, the authors look at other policies — such as an export tax, capital controls, and the default on much of the country’s sovereign debt — which were met with disapproval by many economists and other commentators but played an important role in the recovery.